Self-Insured Workers' Compensation Often Leaves Expensive Coverage Gaps

Risk isn't static. Strategies that worked well in the past may no longer fit an organization's evolving risk profile. That's particularly true for workers' compensation. Claims costs continue to rise, driven by medical inflation and legal and social trends. Today, businesses and municipalities that have long self-insured their workers' compensation programs face challenges obtaining excess coverage at their planned levels, exposing them to bigger claims. An innovative program can bridge those gaps and stem growing financial exposures as long-tail claims develop over time. Working with a specialist with deep knowledge of the markets and access to these special programs can help build an effective workers' compensation program that protects employees and the organization.



As a business grows and changes, so do its workers' compensation risks. Companies selfinsuring their workers' compensation coverage have seen their exposure grow over time as claims costs have soared. While overall claims frequency has declined steadily in recent years due to improved safety and automation, indemnity claim costs have significantly outpaced inflation and medical lost-time claims costs have risen even faster.1 Along with general medical inflation, claims costs have also risen due to advances in medical technology that provide new treatment options, often at a significantly higher cost, and improved survivability. Rising home health care costs are another factor. The cost of the average workers' compensation claim has roughly tripled over the last two decades, reaching about $42,000 in 2018-2019, according to National Safety Council data.2 But it’s the catastrophic claims that pose the real danger for self-insuring employers.

Of claims costing more than $3 million6 Construction accounts for about 40% Slip and fall injuries comprise more than 35% Motor vehicle accidents accounts for more than 20%

While relatively rare, such claims add between $1 billion and $2 billion a year in losses every year, according to a nationwide study of “mega claims” by the New York Compensation Insurance Rating Bureau (NYCIRB).3 Claims with incurred losses exceeding $3 million (at 2018 cost levels) account for about one of every 2,500 reported indemnity claims, according to an NYCIRB study of claims from 2001 through 2017. These mega claims are breaching the $3 million level more quickly than in the past.4 About a third of mega claims cost between $5 million and $10 million and about 10 percent exceed $10 million.

The full cost of catastrophic claims is often not apparent at the start. Catastrophic claims may take years to develop. Workers injured years or decades earlier may need new, more expensive treatment or may require extended home health care. A back or neck injury claim, for example, can last for years with the potential for additional surgeries and medical treatment. Fewer than half of mega-claims reached the $3 million level within 18 months from policy inception, the NYCIRB study showed, and fewer than 90% reached that level within roughly 10 years.

That means that in addition to new claims, self-insured organizations may face a layering of older claims that can't be closed, meaning their exposure is growing over time. As large claims develop, those costs add to each other, even as every new year carries the potential for new accidents. According to the Bureau of Labor Statistics, private employers reported 2.7 million nonfatal workplace injuries and illnesses in 2020, an incidence rate of 2.7 cases per 100 full-time equivalent workers.5

In 2020, private companies  reported 2.7M non fatal workplace injuries and illnesses. That's 2.7 cases In 2020, private companies reported 2.7M non fatal workplace injuries and illnesses. per 100 full That 2.7 cases per time workers.


The potentially costly coverage gap emerges between the self-insured limit that the organization has targeted and the level at which excess insurers are willing to provide coverage. Many businesses and municipalities began to self-insure their workers' compensation in the 1990s when costs were climbing. Companies that had set a typical self-insured limit of $350,000 per claim may now be responsible for the first $500,000 or $1 million of each claim. Of course, the cost of any claim may continue to grow over the years due to the long-tail nature of workers' compensation, adding to the total financial exposure. Injured workers may need continuing care, and losses can compound over time. Economic and social factors add to that growing exposure. Inflation hit the highest level in four decades earlier this year and that is likely to be reflected in medical costs. The trend toward higher jury awards and claims settlements continues in what’s known as social inflation. In addition, a more expansive approach by courts toward which injuries qualify for workers' compensation coverage also plays a role in rising costs. Presumptive laws mean that occupational exposures may be automatically considered workers' compensation claims, such as asbestos in the private sector and PTSD exposures for municipalities. Legislated workers compensation increases add to the overall burden.

To protect themselves, organizations can bring their risk back to their targeted, or intended level with a buy-down coverage known as an excess buffer layer that sits between the self-insured exposure and the excess insurance policy. The buffer provides protection against claims that rise above the self-insured limit. This strategy provides better long-term risk management for both businesses and municipalities. It also protects taxpayers, who ultimately bear the risk for municipalities. The buffer layer policy can offer risk transfer opportunity underneath another excess worker’s compensation policy’s retentions. Limits are offered up to $500,000 and sometimes greater. The buffer layer policies can be written on an admitted basis and provide coverage consistency as they follow form with the excess workers’ compensation policy. They also allow insureds to choose the retention level they need at an affordable premium. Coverage is available in most states.


As prudent risk managers, organizations can't assume they won't have a catastrophic claim. At some point, even the best and safest workplaces can suffer a catastrophic claim. In addition, due to the long-tail nature of workers' compensation claims, insureds need to be aware of the potential for the growing financial exposure these gaps in coverage can pose over time. By working with a specialist who can offer targeted solutions to workers' compensation coverage gaps, agents can provide added value by helping clients manage workers' compensation risks better.


  • Jeffrey J. Bogacki is a Vice President with 5Star Specialty Programs. Jeff maintains 30 years of self-insured workers' compensation consulting experience and is a practice leader and broker specialist for Excess Workers' Compensation coverage and a consultant for various large employer self insured workers' compensation programs.


The 5Star Workers’ Compensation division offers multiple workers’ compensation solutions for employers. 5Star places risks with “A” Rated Carriers and provides various value-added services to help your clients control and reduce workers’ compensation costs. Additionally, 5Star is an industry leader in the placement of primary workers’ compensation and excess workers’ compensation coverage for approved self-insured risks nationwide and can also offer access to surety bonds for regulatory collateral and buffer layer/buy down excess products. 5Star is a subsidiary of CRC Wholesale Group. Learn more at


  1. Understanding the big picture in Workers Compensation costs, Mark Wall, International Risk Management Institute, December 2019,
  2. Workers’ compensation costs, National Safety Council,
  3. Countrywide mega claims, New York Compensation Insurance Rating Bureau, August 2020,
  4. Countrywide mega claims, New York Compensation Insurance Rating Bureau, August 2020,
  5. Employer-reported workplace injuries and illnesses – 2020, Bureau of Labor Statistics, Nov. 3, 2021.
  6. Countrywide mega claims, New York Compensation Insurance Rating Bureau, August 2020,